🎙️ Just Wait For It

🤔 Where in the world are all the stocks going?!

In the late 1990s, the stock market had over 8,000 U.S. publicly traded companies. By 2022, that number had plummeted to ~4,600. Why?

Some credit the strict regulations that followed the early 2000s fraud and accounting scandals, such as the Sarbanes-Oxley Act of 2002, which made it costlier to go public, especially for the little guys.

Another popular theory? The rise of private equity and venture capital. The big-shot investment funds have flexed their muscles since securities regulations loosened in 1996. One 2018 estimate suggested that private investors dished out five times more equity financing to American businesses through private markets than through the public markets.

Some of the biggest players like TikTok's parent company ByteDance, SpaceX, and OpenAI are all part of the private club.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• The stock market’s most important 10 minutes

• Wall Street’s love affair with homes

This, and more, in just 5 minutes to read.

Chart(s) of the Day

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In The News

⏰ The Most Important 10 Minutes in the Stock Market

Markets are evolving at a blistering pace, and the stock market is no different. 

Well, here’s something: A big chunk of stock market activity is now concentrated in the final 10 minutes of the trading day. The shift, particularly noticeable in the S&P 500, reflects a broader trend across the U.S and European markets, according to a new Bloomberg report.

• Passive investing, largely driven by index funds, is a key driver behind the phenomenon. As Bloomberg reports, the products typically buy and sell shares at the close, “since the last prices of the day are used to set the benchmarks they aim to replicate.”
  

• About one-third of all S&P 500 trades now occur in the last 10 minutes of the trading session. The trend is mirrored in Europe, where the closing action accounts for a growing share of trading volumes on public venues.
  

• Concerns have emerged about the potential impact of this concentration of trading activity on market liquidity and price discovery.

One-sided flows: Research suggests that the surge in trading late in the day may distort prices and contribute to liquidity issues. 

• Studies indicate that one-sided flows (when there are only potential buyers or sellers interested in a particular security, but not both) rather than fundamental factors may drive many price movements observed during this period.
  

• Some argue that price reversion overnight is a normal market function and that the benefits of transparent price discovery during closing auctions outweigh any potential drawbacks.
  

• Others say the rise of passive investing is inflating company valuations and disrupting markets during index rebalancing. However, these factors are hard to quantify, and the extent to which they pose a significant problem remains uncertain. 

Why it matters:

In the U.S. where the closing auction process runs alongside the last minutes of continuous trading, trading activity has been resurgent during this period: Last month, nearly 10% of all US shares were traded in the closing minutes.

Some researchers argue that the observed reversals in European markets may be attributed to noise at the market open rather than closing auction distortions. Regardless, regulators continue to monitor the situation. 

• Meanwhile, institutional investors, increasingly sensitive to changes in liquidity, are strategically adjusting their trading behavior to capitalize on opportunities during the final minutes of the trading day. Some brokerages offer extended trading hours for retail investors to provide more flexibility.

Read more (Bloomberg)

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🏠 Wall Street’s Love Affair With Buying Homes

Wall Street has come to Main Street. 

Wall Street investors are purchasing single-family homes in large numbers, almost exclusively for rental purposes. 

What to know: Unsurprisingly, lawmakers have become concerned about the trend in housing availability and prices, especially as housing affordability continues to be a major issue. Policymakers are proposing measures to regulate or restrict such purchases.

• Several Democratic lawmakers at both the federal and state levels have introduced legislation curbing the ability of large investors to buy up single-family homes.
  

• Bills have been proposed in the U.S. Senate and House that would require large owners of single-family homes to sell them to family buyers. Similarly, a Republican bill in Ohio discourages institutional ownership through heavy taxation.
  

• This “corporate large-scale buying of residential homes seems to be distorting the market and making it harder for the average Texan to purchase a home,” Texas Republican Governor Greg Abbott wrote on X last month. “This must be added to the legislative agenda to protect Texas families.”

By the numbers: At the peak in 2022, investors bought more than one in every four single-family homes sold.

• Large firms like Invitation Homes and AMH own portfolios of tens of thousands of homes nationwide.
  

• A study by researchers at Georgia State University found that nearly 11% of all rental homes in the five-county Atlanta area are owned by three real estate companies.
  

• The U.S. The Department of Housing and Urban Development reported that in Atlanta, 21% of rental homes were owned by large institutions in 2022.
  

• The proposed legislation aims to cap rental-home ownership for many companies at no more than 50 homes. Some bills suggest even lower limits, such as 20 homes.

Why it matters:

Millions of Americans struggle with inflation, from groceries to insurance to transportation. However, for many, housing affordability might be the biggest problem.

The influx of investors into the housing market has exacerbated the shortage of homes for sale and driven up prices, making it increasingly difficult for first-time buyers to compete. The concern has prompted legislative proposals in states like Nebraska, California, New York, Minnesota, and North Carolina.

Housing debate: The surge in home purchases by investors, including large firms backed by private equity, peaked in 2022 during the pandemic but has since slowed due to rising interest rates and tighter supply. 

• Proponents of such investments argue that they provide renters access to desirable neighborhoods they might not otherwise afford.
  

• Critics fear that the concentration of home ownership in the hands of large corporations could make homeownership less attainable for average Americans.
  

• A study funded by the University of California, Santa Barbara, and the Manhattan Institute found nearly equal support among Republicans and Democrats for blocking Wall Street firms from buying homes.

• Advocates for the single-family rental industry oppose such regulations, attributing rising prices to an undersupply of new construction homes rather than investor activity.

The final word: "It’s an antitrust in spirit bill,” said one Republican senator from Ohio, describing his bill as heavily taxing large landlords to discourage monopoly power in neighborhoods and make starter homes more accessible.

Watch more

Quick Poll

On Friday, we asked: Are you currently invested in Cathie Wood’s Ark Funds?

—Roughly half of respondents said they’ve either sold out of their Ark investments or still hold them. One reader who exited their position said, “Her investments seem very rational and logic, but lost money!”

— Readers who never invested in Wood’s funds said, “Friends admired Cathie back in 2021 and I told them it was a joke.” Another said, “Simple indexes for the majority of my capital. Consistent, steady growth and simplicity, then let compounding do the rest between growth and reinvested dividends.”

— Another simply wrote, “I wouldn't put any of my money within 900 miles of her funds.”

See you next time!

That's it for today on We Study Markets!

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